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Siemens moves to expand its industrial software portfolio through a definitive agreement to acquire UGS Corp., a worldwide leading provider of PLM software and services. The agreement was made between Siemens and the current owners Bain Capital, Silver Lake Partners and Warburg Pincus. The purchase price amounts to US $3.5 billion, including assumption of existing debt. The activities of UGS are to be assigned to the Siemens Automation and Drives Group (A&D). A&D will thus become the first supplier for the manufacturing industries to provide an end-to-end software and hardware portfolio encompassing the complete lifecycle of products and production facilities. The transaction is

subject to the approval by the relevant authorities.

With a global workforce of 7,300 and more than 46,000 customers in 62 countries, UGS, headquartered in Plano, Texas, U.S., is a worldwide leader in PLM software and services. PLM is a mission-critical, enterprise business platform that helps companies innovate and grow by enabling them to digitally create, build and manage their products. UGS is a supplier to customers in the automotive, aerospace and defense, consumer goods, electronics and machinery industries around the world. UGS and Siemens A&D already started their business relationship in 2003 with joint projects addressing digital manufacturing technology.

UGS’ software portfolio covers the entire array of collaborative Product Data Management (cPDM), computer-aided design/computer-aided manufacturing/computer-aided engineering (CAD/CAM/CAE) and digital manufacturing simulation (digital factory’), the company holds strong revenue and market share positions globally in digital manufacturing and cPDM – the fastest-growing segments within the PLM market. In fiscal 2005, the company reported revenue of just under US$1.2 billion, in the Third Quarter 2006, the company reported its 13th consecutive quarter of year-over-year revenue growth.

“With the acquisition of UGS, we combine its competence in the sector of digital factories with our leading know-how in industrial automation. This combination makes our customers’ processes faster, better and more cost efficient. With the unique combination, we underscore our position as a trendsetter in automation systems and bring this business into a new dimension,” said Klaus Kleinfeld, President and CEO of Siemens AG.

The offer of Siemens A&D is based on a comprehensive, technologically consistent product portfolio ('Totally Integrated Automation'), enabling Siemens to provide every customer with an integrated package of engineering and automation systems. By integrating more than 3000 software engineers of UGS, the Group will employ around 7000 software experts in total. Helmut Gierse, President of Siemens A&D, explains: "Seamless flow of information and data enable collaboration across the whole value chain. This is becoming crucial to increase productivity in the manufacturing industries where the competitive pressure is constantly rising. With the combined portfolio of A&D and UGS,

our customers will be able to enter a complete new scale of efficiency, whether they are manufacturers, engineering service partners, system integrators or machine builders. Integrated solutions will lead to reduced production costs, higher product quality, shorter time to market and increased flexibility toward market trends. On the basis of our unique offer, we aim at a long term continuation of sustainable value enhancement for A&D.”

The world market for PLM software and services has a volume of approximately US$13 billion with projected yearly growth rates of 7 percent to 9 percent. From a technological point of view, the market will be influenced by the convergence of product lifecycle, manufacturing and enterprise information technologies in many segments. The previous islands of product development, manufacturing and service software will increasingly transform into one integrated systems business. This enables a complete-solution supplier to achieve higher growth rates, greater value added and possibilities for differentiation from competitors.

The design of future production systems will reach from the creative product-design process with CAD tools to the choice and design of logistics, service and recycling strategies. Through the use of smart and modular mechatronic systems, production will be changed and adjusted swiftly and flexibly. One of the key differentiating factors of success will be the early engineering phase establishing a digital link between product development and production, including product traceability facilities and possibilities to synchronise with merchandise management systems.

Siemens A&D and UGS are each known for their leadership in open standards and interfaces in their respective industries. “By combining expertise in the physical world of automation and the virtual world of PLM software, Siemens will be the only company able to offer integrated software and hardware solutions to its customers throughout their whole production process. All our future industrial software and hardware products will support today’s and future leading interfaces and standards. We aim to be the first to market with innovative digital factory solutions, which truly unify the engineering and automation domain,” stated Gierse.

“The combination of Siemens and UGS is a clear game-changer in the global PLM industry due to our shared vision of Totally Integrated Automation,’” said Tony Affuso, chairman, CEO and president of UGS. “Our customers win through the backing of the long-term security of their system investments provided by one of the world’s largest and most successful and innovative companies. In addition, we are able to provide added value to Siemens’ customers by virtue of being the most practiced PLM provider in open systems, which eases integration with the Siemens technology already in place in all of our key markets.”

UGS is a leading global provider of product lifecycle management (PLM) software and services with 4.4 million licensed seats and 46,000 customers worldwide. Headquartered in Plano, Texas, UGS’ vision is to enable a world where organizations and their partners collaborate through global innovation networks to deliver world-class products and services while leveraging Uppsala’s open enterprise solutions, fulfilling the mission of enabling them to transform their process of innovation.

Siemens Automation and Drives (A&D), Nuremberg, Germany, is the worldwide leading supplier in this field. Products developed by A&D include standard products for the manufacturing and process industries and for the electrical installation industry as well as system solutions, for example for machine tools, and solutions for whole industries such as the automation of entire automobile factories or chemical plants. Supplementing this range of products and services, A&D also offers software for linking production and management (horizontal and vertical IT integration) and for optimizing production processes. A&D employs 70,528 people worldwide and in fiscal year 2006 (to

September 30) earned a group profit of 1.572 billion on sales of 12.848 billion and orders of 14.108 billion.

Commentary By Jeffrey Rowe, Editor

Well, this story is going to be tough to top for this year, and probably much longer than that. It caught a lot of people by surprise (myself, my peers, and most UGS employees) with regard to its timing, as well as who did the acquiring. It’s interesting and ironic that another huge PLM company is now European based – Siemens (Germany) and Dassault Systemes (France). Whether or not that is particularly significant remains to be seen, just interesting.

UGS has certainly seen a lot of activity the past few years, and the acquisition by Siemens seems to be the final chapter for all of this activity, at least for the foreseeable future. Actually, UGS and Siemens are not exactly strangers, having started a joint business relationship in 2003.

Let’s go back a few years and step back in time to see what led up to the Siemens deal.

EDS said in October 2003 that it planned to complete an initial public offering (IPO) or a sale of a minority stake of its UGS PLM Solutions unit, a software unit that had outperformed its main outsourcing business. Things had been looking up for UGS' PLM business - sales rose to $894 million in 2003 from $879 million in 2002. But, after posting a deep quarterly loss and forecasting earnings that were only half of analysts' estimates for 2004, EDS said it would not rule out the chance of selling the whole subsidiary, which the company said could be worth about $1.8 billion.

In early 2004, the business was valued at 1.5 times sales, or about $1.2 billion. However, it became widely known that the company would not accept an offer for less than two times 2003 sales, or approximately $1.8 billion. Issues regarding a possible transaction (understandably) stayed pretty quiet until the acquisition announcement was made. So, at $2.05 billion, EDS got what it wanted originally, and then some.

Even back then, from the beginning it was pretty clear that UGS PLM probably would not be acquired by a competitor, staving off, again, MCAD market volatility and further MCAD vendor consolidation. When things started to heat up and get serious, I didn't expect this acquisition to drag out for many months or years - there was just too much at stake for EDS, customers, and possible suitors. EDS needed the cash that a sale would bring and chose the best route for acquisition - three equal partners.